AFI_COVID19

MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION Early lessons from regulators and policymakers SPECIAL REPORT

2 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION ABOUT THIS REPORT AND WHAT’S INSIDE This report takes a holistic look at what we have learnt so far, in responding to COVID-19 and its fallouts for financial inclusion, our economies and people. It captures first high- level lessons on policy responses that emerged within the network. ACKNOWLEDGMENTS This special report is a product of the AFI Management Unit. We would like to thank AFI member institutions, partners and donors for generously contributing to development of this publication. © 2021 (September), Alliance for Financial Inclusion. All rights reserved.

3 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION EXECUTIVE DIRECTOR’S MESSAGE 34 FUTURE OUTLOOK: GLOBAL SNAPSHOT COVID-19 POLICY PATH TO RECOVERY RESPONSE DASHBOARD 6 AND FINANCIAL INCLUSION 30 1 3.1 Investments in RegTech & SupTech 32 34 CONTEXT AND 3.2 Drive towards Digital Integration 35 BACKGROUND 7 and DFS Interoperability 3.3 Innovations in Alternative Financing 2 and FinTech for MSMEs EMERGING LESSONS FROM 3.4 Data to Assess Policy Effectiveness 36 MANAGING THE IMPACT OF COVID-19 ON FINANCIAL 3.5 Green Recovery and Resilience Building 37 INCLUSION 38 12 2.1 Access 3.6 Integration of Intersectionality and 14 Gender Inclusive Finance 2.2 Usage 418 2.3 Quality 21 THE ROAD 24 AHEAD 2.4 Resilience 40 2.5 AFI’s Role in Mitigation Phase 28 4.1 Collaboration at National and International Levels 42 4.2 AFI’s Role in Accelerating Recovery 42 GLOSSARY OF TERMS AND ABBREVIATIONS 44 WORKS CITED AND REFERENCES 45 Cover image: Asia. (Photo by Bastian AS/Shutterstock). Page 2&3 image: Ghana. (Photo by Kwame Amo/Shutterstock)

4 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION A MESSAGE FROM AFI'S EXECUTIVE DIRECTOR The COVID-19 pandemic has disrupted lives and economies in unprecedented ways over the last 18 months. The full impact of this global crisis on countries, businesses and households is still unfolding, as many countries continue their fight to control the spread of the virus.

5 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION What we can be certain of already is that despite the needs of its members during this unprecedented and global nature of this crisis, ITS EFFECTS HAVE BEEN challenging time. It has facilitated a number of in- MORE PROTRACTED FOR DEVELOPING AND EMERGING country support for policy response implementation, ECONOMIES, and are being felt disproportionately by virtual dialogues and forums for peer-to-peer learning the vulnerable and disadvantaged populations of the as well as engagement with private sector partners, world. These are the very people and countries that the developed country peers, international organizations AFI network is committed to serving by making financial and development agencies. These initiatives have services more accessible. aimed to address the immediate information and knowledge needs of members during the pandemic. Over the past decade, our members have achieved a AFI has also published policy guidance in emerging great deal in advancing the financial inclusion agenda policy priority areas and rolled out interactive dynamic through a range of policy reforms and interventions. dashboards to assist them in obtaining up-to-date peer- to-peer practical policy responses for adoption in their +100 In the past four years alone, jurisdictions. AFI members have reported and attributed over 100 policies and This swift and collective response of the AFI network, regulations annually, an indication grounded in the resolve to move forward towards its that the preparatory work going goal of expanding and improving financial services for back many years is beginning to the world’s unbanked, has not only contributed towards materialize. mitigating the immediate impact of the pandemic but also opened up new opportunities and avenues for Many of these policy reforms target disadvantaged us to implement impactful policy approaches for the segments, such as micro and small businesses and post-crisis economic recovery phase, towards a more women. As the COVID-19 pandemic swept the globe, sustainable and inclusive financial sector that leaves no these gains came under threat as millions of people, one behind. especially young people and women, lost jobs and income, micro, small and medium enterprises (MSMEs) This report takes a holistic look at what we have learnt experienced a drop in customers and revenues, and so far, in responding to COVID-19 and its fallouts, for financial institutions that serve the bottom of the our economies and people. It captures first high-level pyramid faced new risks to their sustainability. lessons on policy responses that emerged within the network. Even though the pandemic is not over, pausing Central banks and financial sector regulators were quick to take stock of emerging lessons and policy priorities to recognize these risks and swiftly responded with will improve our preparedness for future crises as policy measures that would aid those most affected by well as position the network to fully harness emerging the pandemic and consolidate the hard-earned gains opportunities. The path to an inclusive and sustainable made towards social progress and inclusion. Early in recovery requires partnerships and collective action the pandemic, it became clear that the AFI network, as which AFI is well positioned to deliver as a policy a global knowledge exchange platform, was uniquely leadership alliance owned and led by its members. positioned to assist its members in developing and implementing their policy response to COVID-19. In Dr. Alfred Hannig these unparalleled circumstances, AFI could offer Executive Director, AFI members a trusted space to come together, exchange ideas and early lessons in dealing with the pandemic impact, and gain assistance to implement practical and relevant policy interventions. To meet these member needs, the AFI Management Unit launched its COVID-19 Policy Response in March 2020, aimed at supporting members in developing and implementing new and tested policy interventions to manage the risks and leverage the opportunities created by the pandemic for financial inclusion. Since then, AFI has delivered a range of services to meet the

6 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION GLOBAL SNAPSHOT AFI COVID-19 POLICY RESPONSE DASHBOARD AFI MEMBERS BY REGION AND COVID-19 POLICY RESPONSE TYPE East Asia & South-East Asia Eastern Europe & Central Asia Latin America & Caribbean Middle East & North Africa Pacific South Asia Sub-Saharan Africa 42 14 10 9 8 8 6 COVID-19 POLICY RESPONSE BY TYPE AND REGION CONSUMER PROTECTION CONSUMER LIQUIDITY DEVELOPMENT BANK SUPPORT DIGITAL FINANCING FISCAL POLICY INTEREST RATE SME FINANCE STIMULUS PACKAGE WOMEN & DFS WOMEN & MSMEs WOMEN & REGULATION WOMEN & SOCIAL PROTECTION 0 5 10 15 20 25 30 35 40 45 50

7 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION GENDER INCLUSIVE FINANCE (GIF) COVID-19 POLICY RESPONSES IN AFI MEMBER JURISDICTIONS Women & Social Protection Women & MSMEs Women & Regulation Women & DFS 1 1 11 ESTONIA LATVIA LITHUANIA NETHERLANDS LUXEMBOURG CZECHOSLOVAKIA 7 SWITZERLAND 2 BOSNIA AND HERZEGOVINA MONTENEGRO KOSOVO MACEDONIA ALBANIA LEBANON 6 14 PALESTINE 1 SAUDI 1 ARABIA 54 MYANMAR 1 8 3 DJIBOUTI SURINAME CÔTE 16 10 6 D'IVOIRE 6 MAYALSIA 7 SÃO TOMÉ REPUBLIC E PRINCIPE OF THE CONGO 5 INDONESIA 1 6 TIMOR LESTE BOTSWANA ESWATINI 18 MIDDLE EAST & LATIN AMERICA SUB-SAHARAN EASTERN EUROPE EAST ASIA & SOUTH PACIFIC NORTH AFRICA & CARIBBEAN AFRICA & CENTRAL ASIA SOUTH-EAST ASIA ASIA GENDER INCLUSIVE FINANCE (GIF) COVID-19 POLICY RESPONSES BY TYPE WOMEN & SOCIAL PROTECTION WOMEN & MSMEs WOMEN & REGULATION WOMEN & DFS 0 5 10 15 20 25 30 35 40 45 50 55 68% 25% 131 OF POLICIES AND OF POLICIES AND TOTAL GIF To access the REGULATIONS REPORTED REGULATIONS REPORTED POLICY MEASURES dashboard, please visit IN 2020 WERE COVID-19 WERE DFS-RELATED www.afi-global.org/ RELATED covid-19

8 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION SECTION 1 CONTEXT AND BACKGROUND The outbreak of COVID-19 in early 2020 and its rapid spread across the world created an unprecedented health and economic crisis, affecting countless individuals, families and communities. Kolkata, India. (Photo by suprabhat/Shutterstock)

9 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION The imperative to control the spread of the virus The International Labour has led to lockdowns and movement controls, Organization (ILO) finds that restricted business and social activities and the employment losses in 2020 were allocation of precious fiscal resources towards higher for women than for men, public health responses in many countries. and for young workers than for older ones1. These measures continue to have economic and social implications for millions of individuals and In terms of infections and businesses around the globe. deaths, the pandemic has also disproportionately hurt those in As in most crisis situations, the effects are turning low-income brackets, within as out to be more severe for the poor, and already- well as across countries2. disadvantaged and vulnerable groups, such as women, youth, people living with disabilities and In fact, global poverty is expected forcibly displaced persons (FDP). FOR Example: to significantly increase for the first time in 20 years, with 120>>>PMEILOLPIOLN anywhere between 119 million and E 124 million people pushed into poverty due to COVID-193. Similarly, compared to large firms, the effects on small and medium-sized enterprises (SMEs), especially those in the informal sector and those led by women, have been particularly severe because of their higher levels of vulnerability and lower resilience4. 1 ILO. 2021. ILO Monitor: COVID-19 and the world of work. Seventh edition. 25 January. Available at: https://www.ilo.org/wcmsp5/groups/public/@ dgreports/@dcomm/documents/briefingnote/wcms_767028.pdf 2 Dizioli, A., Andrle, M., Bluedorn, J. 2020. “COVID-19 Hits the Poor Harder, but Scaled-Up Testing Can Help”. IMFBlog. Available at: https://blogs.imf. org/2020/12/03/covid-19-hits-the-poor-harder-but-scaled-up-testing-can-help/ 3 Lankner, C., Yonzan, N., Mahler, D., Aguilar, R. Wu,H.2021. “Updated estimates of the impact of COVID-19 on global poverty: Looking back at 2020 and the outlook for 2021.” World Bank Blogs. Available at: https://blogs.worldbank.org/opendata/updated-estimates-impact-covid-19-global-poverty-looking- back-2020-and-outlook-2021 4 OECD. 2020. Coronavirus (COVID-19): SME Policy Responses (Updated). 15 July. Available at: https://www.oecd.org/coronavirus/policy-responses/ coronavirus-covid-19-sme-policy-responses-04440101/

10 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION These unprecedented economic These collective achievements of AFI members have challenges created by the COVID-19 been facilitated and enabled through the network’s pandemic also pose risks to the gains collaborative model, which applies a bottom-up made in financial inclusion over the approach in designing and implementing financial past decade, including across the AFI inclusion policies. network, which represents about 70 percent of the unbanked population Policies to address COVID-19 impact have been a in the world. key priority in the last year. Since the launch of the network, AFI member 68% 68 percent of the about 137 institutions have reported over 700 policy and policies and regulations reported regulatory changes attributable to their engagement in 2020 were COVID-19- with AFI. This has been a consistently increasing trend, related, with provisions on debt rising from only four policy changes reported in 2009 restructurings, loan deferments, to 137 policies reported in 2020 – an indication that increased liquidity, among others. the preparatory work going back many years is now beginning to bear fruit. The policy responses mainly targeted the micro, small and medium enterprise (MSME) These reforms encompass a broad range of policy areas sector. Provisions were also made for e-money related to financial inclusion, such as digital financial transactions to reduce costs and increase access services (DFS), consumer empowerment and market and usage of digital financial services. conduct (CEMC), national financial inclusion strategies (NFIS), SME finance and financial inclusion data and measurement. The enhanced focus of AFI members on advancing the financial inclusion agenda has also been captured through the endorsement of various AFI accords. The adoption of the Denarau (Photo by Suprabhat Dutta/iStock) Action Plan5 in 2016 accelerated the number of Maya Declaration6 Early in the pandemic, both risks and opportunities commitments as well as policies began to emerge for financial inclusion as economic aimed at addressing the gender policymakers and financial sector regulators rushed to gap in financial inclusion. devise and implement interventions to mitigate the socioeconomic impact of COVID-19. Of the 137 policies > View here and regulations reported by AFI members in 2020, 68 percent were related to COVID-19. The recent increase in policies and regulations around FinTech 5 AFI. 2016. Denarau Action Plan: The AFI Network Commitment to Gender and national payment systems and Women’s Financial Inclusion. Available at: https://www.afi-global. aimed at nurturing an enabling org/sites/default/files/publications/2016-09/Denarau%20Action%20Plan. environment for innovation are pdf in line with the Sochi Accord7 of 2018. 6 AFI. 2011. Maya Declaration. Available at: https://www.afi-global.org/ global-voice/maya-declaration/ > View here 7 AFI. 2018. Sochi Accord: FinTech for Financial Inclusion. Available at: https://www.afi-global.org/global-voice/maya-declaration/sochi- accords/

11 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION In the early months of the pandemic, policy and inclusive policy solutions for the ‘recovery’ phase, interventions focused on ‘mitigation’8 that could enable which should accelerate the achievement of financial continuity of business activity in a safe environment inclusion goals within the specific country and regional and provide relief to the low-income and other hardest- contexts of AFI members. hit segments. The list below outlines some of the policy measures taken. Throughout the COVID-19 pandemic, AFI leaders have actively engaged in the AFI network to share their Fiscal policies to mitigate the impact peers’ practical policy interventions, which have been of the pandemic through emergency applied in the network and beyond. There has also been relief aid and direct interventions to engagement and exchange on how to sustain policy support the health sector, firms and interventions and adapt innovative policy solutions households; to ensure the implementation of ‘mitigation’ and recovery measures to maintain the gains of financial Monetary policy measures through inclusion. In response, the AFI Management Unit stimulus packages to mitigate the designed and deployed, through its member-based shocks caused by the pandemic, done Working Groups and Regional Initiatives, interactive through interest rate cuts, loans policy response dashboards and virtual platforms for moratoriums, quantitative easing and systematic, practical knowledge exchanges that have direct credit interventions, been instrumental in assisting members in this quest. At the time of writing this report, the world remains in Through collaboration with the private the grips of the pandemic; however, some early lessons sector to reduce transactions costs, the from AFI members’ efforts to manage the ‘mitigation’ payments burden of households and phase and trends in future priorities have begun to MSMEs could be eased. emerge. This report endeavors to capture such lessons to reinforce and scale the network policy support The progress made by AFI members over the past and leaders’ insights that build impetus for members decade in advancing financial inclusion, particularly for to adopt impactful policy response measures for the women, played an important role in the implementation recovery phase. of these mitigation efforts. For example, initiatives in digital finance, consumer protection, mobile money, The report consists of two parts. Part I consolidates agent banking, electronic know your customer (e-KYC) the lessons emerging from the ‘mitigation’ phase processes and financing for SMEs played a critical across the three core dimensions of financial inclusion part in enabling the implementation of these policy – access, usage and quality – as well as resilience in the responses9. context of COVID-19. Part II adopts a forward-looking intersectional lens and focuses on the policy outlook in However, these interventions, which were meant to last the ‘recovery’ phase. Even though the COVID-19 crisis is for the short to medium term and facilitate continuity yet to be over, the report aims to provide a foundation of economic activity, have been facing sustainability for building institutional preparedness amongst AFI challenges due to a tightening up of available fiscal members to devise and implement policy responses that policy space since the COVID-19 pandemic is ongoing, advance financial inclusion, accelerate recovery and and most of AFI members economies have been heavily build resilience. It also reinforces the AFI cooperation impacted. A recognition has also emerged that the crisis model that is founded in the belief that human has exacerbated already-entrenched inequalities and progress in today’s interconnected world, including the disproportionately affected groups that AFI members achievement of the Sustainable Development Goals declared as priority for financial inclusion strategies (SDGs), requires the international community to work in the Kigali Statement10. This includes small and collectively. medium enterprises (SMEs), women and girls, youth and older persons, persons living with disabilities, and 8 Where the term ‘mitigation’ appears in inverted commas in this report, FDP. Hence, as members look ahead beyond the crisis, the term specifically refers to short-term measures taken during the there is an increasing demand to better understand Covid-19 pandemic to enable the continuity of business activity and the effectiveness of the policy responses already relief for the hardest-hit segments of the population. implemented. There is also a need to identify practical 9 Hannig, Alfred. 2020. AFI. “Opportunity in every crisis”. Available at: https://www.afi-global.org/newsroom/blogs/opportunity-in-every- crisis/ 10 AFI. 2019. Kigali Statement: Accelerating Financial Inclusion for Disadvantaged Groups. Available at: https://www.afi-global.org/wp- content/uploads/2020/11/Kigali_FS_20_AW_digital.pdf

12 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION SECTION 2 EMERGING LESSONS FROM MANAGING THE IMPACT OF COVID-19 ON FINANCIAL INCLUSION COVID-19 has posed a multitude of challenges to financial regulators and policymakers across the globe and its effects are still being felt by those in developing as well as developed nations. The uncertainty generated by the pandemic has created global economic fallouts, for example, shrinking gross national incomes, increased unemployment and job losses, volatility in currencies, and even social unrest. Mexico city. (Photo by Daniel Aguilar/REUTERS/Alamy Stock Photo)

13 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION The repercussions, however, have been more Policies related to digital financial difficult to adapt to in the Global South, where furthering the rate of financial inclusion has been 25% services (DFS) accounted for 25 percent a long-standing challenge and more sections of the of these, with noted progress in digital population are vulnerable to poverty because of the ID systems, mobile communications, pandemic. digital payment systems, and the usage of e-money and mobile wallets. With governments imposing strict lockdown measures to slow the spread of the virus, several These provisions were made to accelerate access and challenges to income, economic opportunities, and usage of DFS during the pandemic to enable business financial access and usage started to emerge, many continuity during lockdowns. AFI members also made of these had a strong gender angle or intersected strides in policy provisions for MSMEs via debt with challenges faced by other vulnerable groups. restructuring plans, loan deferments, increased Vulnerable groups who are on the edges of economic liquidity, and the promotion of DFS for businesses and social stability include rural and remote through, for example, lower costs of e-money populations, youth, women, people living with a transactions. disability, microenterprises and entrepreneurs in the informal sector, and FDP. IN THIS SECTION, we capture key lessons that have emerged from the network so far in mitigating the Economic policymakers and financial sector impact of the pandemic. We consider policy measures, regulators, in developing and emerging economies, challenges and opportunities across the three were swift to respond to the economic threats of dimensions of financial inclusion. i.e. access, usage the pandemic. A wide range of policy measures that and quality as well as analyze ‘resilience’ as a cut across the key dimensions of financial inclusion dimension, given the implications of COVID-19 for (access, usage and quality) were put in place. inclusive green finance (IGF). The AFI network's response and role during the pandemic is also The AFI Policy Change Survey 2020 reveals that of summarized. the 137 policy and regulatory reforms reported, 68 percent were COVID-19 related11. 11 The reported policy and regulatory changes are categorized into AFI policy areas: Consumer Protection and Market Conduct, Digital Financial Services, Financial Inclusion Data, Financial Inclusion Strategy, Gender Inclusive Finance, Global Standards and Proportionality, Inclusive Green Finance and SME Finance. If it is not categorized in these policy areas, it is labelled as “others”. Full report can be viewed here - AFI. 2021. Policy and Regulatory Reforms in the AFI Network 2020. Available at: https://www.afi-global.org/publications/policy-and-regulatory-reforms-in-the-afi-network-2020/

14 2.1 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION ACCESS Access to financial services and basic LESSON 1 economic transactions became a major challenge as lockdowns and DFS play a crucial role in preserving movement restrictions were rolled access to financial services in a safe out to control the COVID-19 outbreak. manner during a crisis. Countries with relatively more developed technology Economic policymakers swiftly and payments infrastructure were responded through policy better positioned to mitigate the interventions that would enable risks to financial inclusion posed by access to financial services, so COVID-19 pandemic. households and businesses could continue making payments and DFS can facilitate remote, contactless transactions purchase goods and services. Key which proved critical during COVID-19, when social policy lessons that have emerged distancing rules needed to be observed to keep people from interventions aimed at driving safe. Digital payments, particularly when accompanied access are discussed below. by digital financial infrastructure (interoperable payments, unique digital IDs, etc.) and enabling Early on in the crisis, AFI regulations (e-KYC, fees, etc.), helped governments published the Policy Framework quickly and securely make cash transfers and other for Leveraging Digital Financial socioeconomic benefits in the form of financial support. Services to Respond to Global In many cases, this support was granted to the most Emergencies12 to provide vulnerable members of society, including women and guidance to regulators. children. These measures enabled businesses’ funds to > View here keep flowing and thus allowed individuals to send money cross border and to pay for purchases at a market or a store from the safety of their homes13. These benefits promoted many AFI members to rapidly introduce short- term and medium-term policies to increase access to DFS during the pandemic. In 2020, half of the DFS policy reforms developed and implemented by AFI members were targeted towards mitigating the negative effects of the COVID-19 pandemic. However, benefitting from DFS requires investments into inclusive and robust technology and payments infrastructure. Countries with relatively more developed DFS infrastructure were able to leverage these systems to mitigate the challenges of COVID-19 to the financial sector. 12 AFI. 2020. Policy Framework For Leveraging Digital Financial Services To Respond To Global Emergencies – Case of Covid=19. Availãble at: https://www.afi-global.org/sites/default/files/publications/2020-06/ AFI_DFSWG_COVID_PF_AW3_digital.pdf 13 AFI. 2020. Policy Framework For Leveraging Digital Financial Services To Respond To Global Emergencies – Case of Covid=19. Availãble at: https://www.afi-global.org/sites/default/files/publications/2020-06/ AFI_DFSWG_COVID_PF_AW3_digital.pdf

15 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION For example, in Sub-Saharan Africa (SSA), Ghana The results obtained by the BoG’s review of had made significant progress in pre-COVID-19 times mobile money transaction data after implementing towards improving its payment and technology its COVID-19 financial sector guidelines showed infrastructure and in enabling a conducive regulatory significant DFS adoption. regime14. These interventions set the trail for a swift and effective response to the COVID-19 pandemic by 85% The BoG especially observed that the Bank of Ghana (BoG) through policy responses such the activation of dormant wallets as those below. (mobile money) increased from an average of 71,984 to 84,025 > Mobile money funds transfers of up to GHS100 per week after the measures were (USD20 at the time of writing), excluding cash-out, introduced. was made fee-free. Additionally, a positive outcome noted was the > All mobile subscribers were permitted to use their impact of the simplified onboarding requirements pre-existing mobile registration details to be that leveraged on GSM registration data onboarded for a minimum KYC account. contributed to new KYC accounts of 208,120. > Daily mobile money transactions limits and The review also revealed average wallet balances maximum account balances were revised to enable increased by about 27 percent during the users perform more remote transactions. intervening period, while the number of active merchants recorded an increase of 14 percent, > Aggregate monthly transaction limits saw the reflecting foremost dramatic revision as transaction limits were abolished for medium KYC and enhanced KYC (Photo by abugrafia/Shutterstock) accounts. 14 As informed by Pillars II (Access, Quality, and Usage of monetary In Southeast Asia, Malaysia also benefited immensely Services) & Pillar III (Financial Infrastructure) of its National Financial from its established digital payment systems and Inclusion and Development Strategy (NFIDS) and the Digital Financial infrastructure covering systems like Shared ATM Services Policy launched in May 2020 respectively. Network (SAN), InterBank GIRO, Financial Process Exchange (FPX) and DuitNow. These systems enabled an 15 USD382 million as of September 2021. effective response to the global pandemic by supporting 16 USD453 million as of September 2021. seamless digital payment options including contactless, 17 The sources of these information are from AFI hosted online events QR and other efficient digital payments for individuals and MSMEs. involving the members of the Working Group and Expert Group on Financial Inclusion Policies in each region, the AFI Policy Response Bank Negara Malaysia (BNM) worked closely with Survey 2020, and member inputs to the AFI COVID-19 Policy Response state governments and DFIs to ensure the operational Dashboard. continuity of the agent banks so that access to finance carried on even during the movement restrictions. BNM partnered with the relevant financial institutions and set up ATMs and mobile counters in rural and remote communities to facilitate the distribution of government support. In addition, the existing digital payment channels and regulatory regime supported the establishment of new alternative channels, such as mobile ATMs, to further improve the nationwide provision of basic financial services. In the first nine months of 2020, there were 17.1 million transactions in basic financial services valued at MYR1.6 billion15 with agent banks totaling MYR1.9 billion16. Some examples of policy interventions from members to drive access to DFS are listed below.17 > Measures to simplify KYC and enable digital onboarding of customers were introduced. For example, Comisión Nacional Bancaria y de Valores

16 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION de México (CNBV) published regulations for the Some examples of innovations from the network are digital onboarding of bank accounts for enterprises included in the list below. to mitigate the impact of COVID-19 on financial inclusion. > In 2021, the Government of Togo and the World Bank launched the Novissi19 cash transfer scheme > More medium-term to long-term policy measures to which targets citizens in the informal sector whose advance digital payments were expedited. For daily income has been disrupted by COVID-19. Using example, Reserve Bank of Fiji (RBF) and Bank of artificial intelligence (AI) to analyze geospatial and Uganda (BoU) introduced their respective National demographic data, the program identifies the Payment System Act in 2020, aimed at boosting lowest-income groups in Togo who are eligible payments through digital solutions. beneficiaries. The program’s achievement of approximately 180,000 new mobile money accounts Several members introduced partial fee waivers represent a seven percent growth in the penetration on digital transactions and increased transaction rate of money transfer services. limits on e-wallets in terms of amounts and number of transactions. For example, Banque > In 2020, Bank of Papua New Guinea (PNG) engaged Centrale du Congo (BCC) increased the ceiling with private-sector digital trust framework YuTru20 for electronic wallets to USD7,500 and increased with regard to digital identification to enable access the daily limit on transactions to USD2,500. It to the formal financial system for people previously also temporarily waived fees for the first five excluded. transactions daily. > With more than 4.5 million FDP in the Democratic Republic of Congo (DRC), BCC created an ad-hoc authorization requirement in 2019 that permitted DFS providers to accept FDP identity cards as proof of identity for banking operations, instead of the national ID card. In 2020, it launched a biometric ID system that meets KYC requirements. (Photo by The Road Provides/Shutterstock) LESSON 3 LESSON 2 Access to formal financial services can improve the resilience of MSMEs, Crises can accelerate innovation that especially by enabling them to access drives financial inclusion forward. government support and stimulus packages during crises. A study by the Centre for Global Development suggests that financial inclusion and exclusion involve correlation MSMEs emerged early in the crisis as one of worst across three dimensions: a national ID, a financial affected segments when lockdowns went into place account and a mobile phone18. People lacking any of and supply chains got disrupted. With low capital and these are less likely to have access to the other two. liquidity buffers, MSMEs struggled to survive as demand The COVID-19 pandemic and the consequent urgency shrunk and revenues fell. Also noted was a strong to reach those most affected catalyzed important gender dimension as many women had to give up their innovations that helped overcome bottlenecks related businesses as their domestic care burden increased and to national IDs and KYC, thus driving financial inclusion. undertaking both roles was no longer possible. 18 Center for Global Development. “Digital Technology in Social Assistance Transfers for COVID-19 Relief: Lessons from Selected Cases”, CGD Policy Paper 181 – September 2020. (https://www.cgdev.org/sites/default/ files/digital-technology-social-assistance-transfers-covid-19-relief- lessons-selected-cases.pdf) 19 Novissi. Available at: https://novissi.gouv.tg/en/home-new-en/ 20 YuTru. Available at: https://yutru.org/

17 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION Economic policymakers, especially in BNM launched a USD450 million stimulus package23 developing economies where MSMEs are to alleviate cash flow problems for SMEs adversely the backbone of the economy, quickly affected by the ongoing outbreak. Notably, BNM recognized the need to support these also set up a USD70 million facility that incentivizes businesses. SMEs to automate processes and digitize operations in the interest of efficiency and productivity. The In many AFI member jurisdictions, emergency measures facility is accessible through a digital portal.24 – specifically ‘mitigation’ policy responses – were introduced to address immediate liquidity challenges, (Photo by 1963208731/Shutterstock) reduce layoffs and avoid firm closures and bankruptcies. These included restructuring of loan facilities, 77% Of all MSMEs in developing countries, moratoriums and fee payment holidays, and stimulus 77 percent are unregistered25, with this packages for MSMEs. A policy note by AFI’s SME Finance factor creating obstacles for them to Working Group21 highlights various measures taken benefit from official economic support by some countries to encourage business operations, programs. safeguard jobs and increase domestic investment. Some examples from the network are described below. AFI Guideline Note 44, on bringing the informal sector on board,26 discusses how policymakers and > The South African Reserve Bank (SARB) has practitioners can incentivize MSMEs in the informal partnered with banks and the National Treasury to sector – and their workers – to access the formal implement a loan guarantee scheme for SMEs. Under financial ecosystem. the scheme, guaranteed loans may be provided to businesses with an annual turnover of less than 21 AFI. 2020. “SME Finance Responses to COVID-19 in AFI Member ZAR300 million (USD20.4 million at of September Countries”. Available at: https://www.afi-global.org/publications/sme- 2021) and the funds can be utilized for operational finance-responses-to-covid-19-in-afi-member-countries/ expenses such as salaries, rent and lease agreements, and contracts with suppliers22. 22 The National Treasure, South African Reserve Bank and Banking Association of South Africa. Anwering your questions about the Covid-19 > The Central Bank of Egypt (CBE) increased its loan guarantee scheme. Source: Available at: http://www.treasury. long-standing requirement that 20 percent of a gov.za/comm_media/press/2020/COVID-19%20Loan%20Guarantee%20 bank’s credit portfolio be allocated to MSMEs – Scheme%20Q%26A.pdf including those involved with renewable energy – to 25 percent in February 2021, channeling another 23 Bank Negara Malaysia. 2020. Additional Measures to Further Support USD7.5 billion to small businesses. SMEs amd Individuals Affected by the Covid-19 Outbreak. Available at: https://www.bnm.gov.my/-/additional-measures-to-further-support- However, access to these packages can be limited for smes-and-individuals-affected-by-the-covid-19-outbreak informal MSMEs. Many women are concentrated in this informal sector, as central banks and governments tend 24 Ghiyazuddin Ali Mohammad. AFI. 2021. “DFS: An effective response tool to use formal financial institutions to transmit such to COVID-19”. Available at: https://www.afi-global.org/newsroom/ support. blogs/dfs-an-effective-response-tool-to-covid-19/ At the AFI Annual General Meeting 25 Stein, P. Pinar, A. Oya,P. Hommes, M.2013. IFC. Closing the Credit in September 2021, member Gap for Formal and Informal Micro, Small, and Medium Enterprises. institutions convened virtually Available at: https://documents1.worldbank.org/curated/ to update the Maputo Accord on en/804871468140039172/pdf/949110WP0Box380p0Report0FinalLatest. access to finance for small and pdf medium enterprises, as a pathway to greater financial inclusion. 26 AFI. 2021. Guideline Note 44: Bringing the Informal Sector onboard. Available at: https://www.afi-global.org/wp-content/uploads/2021/03/ > View here AFI_GN44_AW2_digital.pdf

18 2.2 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION USAGE The uptake and usage rates of LESSON 1 financial services have been improving since the start of the As access increases, policy COVID-19 pandemic. interventions to advance digital ecosystems are needed to drive and This is driven by governments and sustain usage. private sector measures to catalyze digitization and by using financial The incentives and innovations to drive access (such sector channels to deliver social as lowering transaction costs, simplifying customer support to households and economic onboarding, digital literacy for vulnerable groups, stimuli to businesses. digital e-KYC etc.) need to be complemented with other ecosystem interventions to drive and sustain usage of 22% For mobile money, the global volume of DFS. Countries that have invested in strengthening DFS digital transactions rose by 15 percent ecosystems and infrastructure were better positioned from 2019 to 2020, amounting to a to leverage these channels to deliver support to total of USD767 billion, thus growing by households and businesses affected by the pandemic. 22 percent since COVID-19 struck. For example, Reserve Bank of India (RBI), The Latin America and the Caribbean Superintendencia de Banca Seguros y AFP del Perú region experienced the highest growth (SBS) and Bank of Thailand (BOT) have invested in in terms of volume of transactions national digital identity programs and other digital whereas the East Asia and the Pacific infrastructure, such as interoperable payment systems. region posted highest growth in terms They were thus able to utilize this infrastructure to of transactions value27. deliver targeted large-scale fiscal support packages – including to informal sector workers and vulnerable Key policy lessons that have emerged from interventions population segments such as women – during the aimed at driving usage are discussed below. pandemic28. The AFI Member Policy Response Dashboard 29 captures the range of supply-side initiatives taken by central banks and governments in developing countries that aimed at accelerating adoption of digital financial channels during the ‘mitigation’ stage of the pandemic. 27 GSMA. “State of the Industry Report on Mobile Money 2021” (https:// www.gsma.com/mobilefordevelopment/wp-content/uploads/2021/03/ GSMA_State-of-the-Industry-Report-on-Mobile-Money-2021_Full-report. pdf) 28 Newnham, Robin. 2020. “COVID-19: Burden or Boon for Financial Inclusion?”. AFI Blogs.23 September 2020. Available at: https://www. afi-global.org/newsroom/blogs/covid-19-burden-or-boon-for-financial- inclusion/ 29 AFI. AFI’s COVID-19 Policy Response & Dashboard. Available at: https:// www.afi-global.org/covid-19/

19 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION These initiatives aimed at increasing interoperability Though tackling restrictive social norms and customary between FinTech and banks, opening up new options of practices are not within the remit of the regulator, digital remittances and payments, and strengthening these areas also need to be addressed in tandem for agent networks. Some examples of policy interventions regulatory progress to be effectively implemented. from the network are listed below. Several AFI members implemented policy changes to > The Central Bank of Egypt (CBE) launched the accelerate financial literacy in their jurisdictions in “electronic acceptance initiative” to increase the 2020 through developing and implementing financial number of electronic points of acceptance available literacy frameworks and national strategies. Some in all governorates. The initiative aims to reach a members also launched targeted financial literacy number of 200,000 QR codes and 100,000 point of interventions in the context of COVID-19. The list below sale (POS) systems along with incentive schemes, includes some examples. and an increase in the number of ATMs by 6,500 and e-onboarding for mobile wallets. Reserve Bank of Fiji (RBF) launched extensive financial literacy campaigns targeting workers > The Central Bank of the Bahamas (CBOB) launched affected by the COVID-19 pandemic. its Central Bank Digital Currency, Project Sand Dollar30, in October 2020 and made revisions to An Economic Response partnership was also relevant legislations in order to provide the established between the RBF and the Pacific regulatory framework for its digital currency. Financial Inclusion Programme (PFIP) to ensure financial literacy seminars were accessible to > Mexican financial authorities strengthened the use impacted communities, including farmers and of the Cobro Digital (CoDi) platform to charge and tourism workers. receive payments using a QR code. Bank of Thailand (BoT) also launched its Interoperable QR Code for In parallel with financial literacy training and retail payment linkage between Vietnam and awareness efforts, the RBF launched and managed Thailand in March 2021. a FinTalk Facebook page to disseminate awareness materials in a multimedia format and publish LESSON 2 details of events relevant to financial literacy training. COVID-19 accelerated the need to promote financial literacy as a tool for consumer protection. Low awareness, trust and operational understanding (Photo by David Gray/REUTERS/Alamy Stock Photo) of DFS being offered in the market can hinder effectiveness of supply-side policy measures aimed at 30 Project Sand Dollar. Available at: https://www.sanddollar.bs/ access and usage. COVID-19 compelled regulators to 31 AFI guideline note on key considerations to understand, develop, promote adoption and usage of DFS, including usage by vulnerable segments such as informal workers, women, facilitate policies and design interventions at advancing digital financial the elderly and MSMEs. However, very quick adoption literacy provides further information. (AFI. 2021. Guideline Note 45. also has the potential to exacerbate vulnerabilities from Digital Financial Literacy. Available at: https://www.afi-global.org/ existing inequalities such as general and digital literacy, publications/digital-financial-literacy/ ) Practical examples of financial access to digital devices or the Internet, financial education policies and programs are also captured in the AFI Case Study capability and existing social norms and customs, etc. on Financial Education in Latin America and the Caribbean. (AFI. 2020. Hence it is important to ensure that segments that are Financial Education in Latin America and the Caribbean. Available at: already disproportionally excluded, such as women and https://www.afi-global.org/publications/financial-education-in-latin- youth, are not left behind during the crisis. america-and-the-caribbean/) Given this reality, enhancing financial education and digital financial literacy are becoming crucial tasks for regulators and FSPs. Solutions offered must minimize possible consumer protection risks, sustain gains made in financial inclusion and ensure financial stability31.

20 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION > In Angola, Banco Nacional de Angola signed a benefit from ePENJANA. Through this initiative, the Cooperation Protocol with their Ministry of Social government provides MYR50 (USD12 as of September Action, Family and Women's Promotion (MASFAMU) to 2021) worth of credits to be used for purchases promote joint financial education efforts aimed at through the selected e-wallet service providers. At promoting women's financial literacy. The objective the same time, the selected e-wallet service is to contribute to the progressive reduction of providers offer additional incentives worth the same gender inequalities. One of the main channels is the amount through vouchers, cashback and reward creation of an environment conducive to credit, points33. which is done through the promotion of microfinance activity, operating in areas identified as having The Moroccan government released an emergency potential to empower women, families and fund – aimed at supporting low-income groups – consequently, society. with grants of between USD90 and USD130 per month. Barid Cash, a digital payment systems LESSON 3 provider, became one of the disbursement centers of these payments. As G2P recipients visited Collaboration between public and Barid Cash outlets to collect their grants, the FSP private sector can improve policy encouraged customers to open mobile payment effectiveness. accounts, and thus, shift from cash to account- based government transfers. Private-public partnerships and combined efforts The incentives included the waiving of account between regulators and service providers played an opening fees, bundling add-on services such as important role in policy effectiveness and dealing with utilities bill payment and an awareness campaign. the financial access challenges posed by COVID-19. For At the same time, to catalyze e-wallet opening, example, during the pandemic, policymakers eased Bank Al-Maghrib (BAM) temporarily simplified capital requirements, reduced refinancing rates, account opening procedures by allowing customers injected liquidity, allowed remote account opening, to open a basic payment account with just their suspended supervision, deferred some payment phone number and digitized national ID card34. obligations (taxes, levies, and others), conducted financial education and took other measures. At (Photo by Marko Rupena/Shutterstock) the same time, the private sector developed digital marketplaces to substitute physical ones, swiftly 32 AFI Leaders’ Public-Private Dialogue (PPD) on COVID-19: Lessons and rolled out digital means of transactions, facilitated opportunities for recovery and advancing inclusive finance and growth in government-to-people (G2P) payments (pensions, 2021 and beyond; held virtually on 04 February 2021. live-support payments, and others), increased transaction limits, waived fees, safeguarded agents 33 M inistry of Finance Malaysia. 2020. Frequently Asked Questions:RM50 and implemented other measures. Collectively, such ePenjana Credits Programme. Available at: https://penjana.treasury. measures helped to substitute cash-based transactions gov.my/pdf/ePENJANA-FAQ-EN.pdf with digital ones rapidly, thus providing support to households and businesses during lockdowns. In some 34 World Savings and Retail Banking Institution, 16 September 2020. jurisdictions, it boosted account opening by as much Available at: https://www.wsbi-esbg.org/press/latest-news/Pages/ as fourfold32. Some examples of collaboration between Turning-Crisis-Into-Opportunity.aspx public and private sectors during the ‘mitigation’ phase of the pandemic are enumerated below. > In June 2020, Malaysia issued its fourth economic stimulus package, named the Pelan Jana Semula Ekonomi Negara (PENJANA) or National Economic Recovery Plan. One of the initiatives under PENJANA is the ‘ePENJANA initiative’, through which the Malaysian government aimed to encourage consumer spending in a safe manner through contactless payments. According to the Malaysian Ministry of Finance, approximately 15 million people could

21 2.3 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION QUALITY The state of the financial markets LESSON 1 has been affected by the COVID-19 pandemic. The drive to increase Enhanced security and resilience of uptake and usage of DFS, respond the digital payments and technology to the urgent needs to MSMEs and infrastructure is needed to manage mitigate the effects on vulnerable risks from rapid digitalization seen groups have implications for the during COVID-19. dimensions of financial inclusion falling under ‘quality’. The awareness that financial services aimed to address financial inclusion challenges are becoming vulnerable to These include issues related to protecting the rights cyber threats was reinforced during COVID-19. The rapid of customers and advancing their understanding of growth in DFS and sudden transition to remote working financial products and services, monitoring market arrangements created new vulnerabilities for financial conduct, and expanding competition to deliver more institutions as well as their customers. The risks were affordable and convenient financial services. even greater for smaller microfinance institutions (MFIs) and FinTechs who may not have robust cybersecurity These policy areas are especially and data protection systems in place. Low-income important to effectively address to populations have low tolerance for error regarding maintain the gains made towards their money and can revert to cash when faced with advancing financial inclusion over the disappointing user experiences or breaches of trust. Any past decade as they aim to develop serious fraud or systemic attack that affects customer customer trust and confidence in the confidence could damage the hard-won gains in financial formal financial sector. inclusion. A BIS study35 found that the financial sector was hit by hackers relatively more often than other AFI members have tackled policy challenges in these sectors during the COVID-19 pandemic, and although this areas posed by COVID-19 and the key emerging lessons has not yet led to significant disruptions or a systemic related to quality are discussed below. impact, substantial risks remain. AFI members responded to these heightened risks by providing enhanced guidelines and directives to financial institutions on cybersecurity and fraud management. Examples are as below. > The Reserve Bank of Zimbabwe (RBZ) instructed banks to review their preparedness for cyber threats and update their cyber risk policies in light of accelerated digitization and remote working arrangements due to COVID-19. Banking institutions were also alerted to remain vigilant about cyber threats and activate appropriate risk management responses as well as conduct ongoing consumer education campaigns36. 35 Aldasoro Iñaki, A. Frost, J. Gambacorta, L. Whyte, D. 2021. “Covid-19 and cyber risk in the financial sector”. 14 January 2021. BIS Bulletin. Available at: https://www.bis.org/publ/bisbull37.pdf 36 Reserve Bank of Zimbabwe. 2020. Mid-Term Monetary Policy Statement: Fostering Price Stability. Available at: https://t3n9sm.c2.acecdn.net/wp- content/uploads/2020/08/Monetary-Policy-Statement-21-August-2020.pdf

22 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION > State Bank of Pakistan (SBP) introduced their B angladesh Bank (BB) launched a refinancing Measures to Enhance Cyber Resilience Amid scheme of USD357 million, aimed at MSMEs COVID-1937, advising financial institutions to enhance and farmers. The funds are made available at due diligence and implement stronger and robust subsidized rates to commercial banks for lending cybersecurity measures to counter cyber risks to the MFIs. MFIs are expected to provide these associated with remote access functionality. These funds at a concessionary rate to clients and are included, for example, immediate establishment of not permitted to impose any additional charges Cyber Threat Intelligence Units (CTI-U) and except fees for admission, passbooks, loan forms, Emergency Response Teams (ERTs), review of and non-judicial purposes41. security policies, and enhancement of existing monitoring capabilities with special focus on VPN connections, remote user authentications and externally exposed systems logs. LESSON 2 Non-bank financial institutions serving the disadvantaged are more vulnerable to systemic risk during a crisis. On the supply-side, the major risk of systemic financial (Photo by Jahangir Alam Onuchcha/Shutterstock) sector crisis or collapse of major institutions, which could drastically set back financial inclusion, has so > The Central Bank of Nigeria (CBN) launched its far been prevented. However, financial institutions Targeted Credit Facility (TCF), which is a NGN50 that serve low-income and other disadvantaged billion (USD138 million as of September 2021) groups have emerged as more vulnerable during this stimulus program for MSMEs as well as households crisis. In countries with many traditional non-bank affected by the pandemic. The funding is being financial institutions such as microfinance, their disbursed through NIRSAL Microfinance Bank, which limited organizational capacities and ability to fund is minority-owned by CBN’s Nigerian Incentive-based investments in digital channels led to interruptions Risk Sharing System for Agricultural Lending of services. Village savings and loans associations (NIRSAL). The annual interest rate on the loans (VSLAs), savings and credit cooperative organizations issued under the Facility will be nine percent, with a (SACCOs) and similar providers were particularly one-year term. The maximum loan size is NGN25 hard hit, disrupting financial lifelines of vulnerable million (USD61,000 as of September 2021) for MSMEs groups, particularly women, when they needed support and NGN3 million (USD7,300 as of September 2021) most.38 Additionally, many of the daily wage workers, for households42. microenterprises and entrepreneurs may not be able to repay their loans as their incomes have dropped. 37 State Bank of Pakistan. 2020. Measures to Enhance Cyber Resilience Governments and regulators have launched several Amid Covid-19. Available at: https://www.sbp.org.pk/psd/2020/C3.htm interventions to support MFIs in not only managing the short-term liquidity crunch (due to delays in loan 38 AFI report on COVID-19 Policy Response in Africa (forthcoming). recoveries) but also to accelerate their digitization. 39 A group of people monthly pitches in a fixed amount of money to a Examples are specified below. pot, and everyone takes turns taking home all of the money at the end > Central Bank of Egypt's (CBE) program aimed at of each month. The practice is also called rotating scoring and credit digitization and formalization of gameya39 rural associations (ROSCA). savings groups in the country is intended to bring 40 AFI, 2021, Financial Inclusion Strategy (FIS) Peer Learning Group, Gender women savers into the formal space in ways that Savings Groups: Formalizing Village Savings Groups With A Gender Lens - feels organic40. The program uses a bank-led model Egypt Case Study. Available at: https://www.afi-global.org/publications/ of DFS, capitalizing on existing mobile payments gender-savings-groups-formalizing-village-savings-groups-with-a-gender- regulations and applying simplified KYC regulations. lens-egypt-case-study/ 41 Michaels, Loretta. Center For Financial Inclusion. 2020. “Preserving Liquidity: Policymaker Responses to COVID-19 and the Impact on Low-Income Customers”. Available at: https://content. centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/08/ Preserving-Liquidity-Policymaker-Responses-to-COVID-19.pdf 42 TrueTellsNigeria. 2021. “CBN 50bn For NIRSAL Loan: See Requirements And How To Apply.” 21 April 2021. Available at: https://truetellsnigeria. com/2021/04/21/cbn-50bn-for-nirsal-loan-see-requirements-and-how- to-apply/

23 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION LESSON 3 The Government of Eswatini introduced a E650 (SZL650 or USD45.11 as of September 2021) Inclusion of disadvantaged groups subsidy on COVID-19 tests for informal crossborder needs to be explicitly addressed traders, most of whom are women who often during policy development. solely rely on income from this trade. The costs of a COVID-19 test certificate were proving With more population segments facing hardships, policy prohibitive for them. impacts to vulnerable groups such as MSMEs, unbanked or underbanked women and youth, and FDP should E650 With this subsidy, the cross- be considered during development stages to ensure border traders would pay a outcomes include better financial inclusion for all. SUBSIDY minimal fee of E200 (SZL200 or USD13.88 as of September Although research into the differentiated impact 2021) for the test, on the of COVID-19 on different population groups is still condition that they are emerging, the evidence base suggesting that existing included in the weekly travel inequalities have been exacerbated by the crisis is list to be submitted to Ministry mounting. of Commerce, Industry and Trade by cross-border trade A study across eight countries, for associations46. example, found that COVID-19 has left 67% women feeling more vulnerable and exposed to financial risk, with the ratio of women confirming this standing at 67 percent for emerging economies43. Explicit policy measures may thus be needed to (Photo by The World Traveller/iStock) mitigate the particular impacts of the crisis faced by these segments. Some examples of countries that 43 The study included France, Germany, Italy, Mexico, Nigeria, Spain, introduced measures targeting disadvantaged groups Thailand and the UK. AXA. 2020. “On the front line: The global economic during the crisis include: impact of Covid-19 on women.” Available at: https://www.axa.com/en/ press/publications/The-global-economic-impact-of-Covid-19-on-women. > Egypt’s National Council for Women launched a COVID-19 response program to increase women's 44 FinDev Gateway. 2021. FinDev COVID-19 Update | 11 - 24 Mar 2021. financial inclusion in rural areas through the scale up Available at: https://www.findevgateway.org/guide/2021/03/findev- and digitalization of VSLAs which have an outreach covid-19-update-11-24-mar-2021 of over 120,000 Egyptian women44. 45 IMF. 2021. Policy Responses to Covid-19: Policy Tracker. Available at: > Several countries such as Kazakhstan and Kenya https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to- have included youth employment schemes in their COVID-19 budgets and COVID-19 economic stimulus packages for 2021. 46 Dlamini, Ambrose Mandvulo. \"Prime Minister's Statement: National Covid-19 Update\". The Government of the Kingdom of Eswatini. 11 > Chad established a Youth Entrepreneurship Fund in November 2020. Available at: http://www.gov.sz/index.php/latest- May 2020, committing 0.6 percent of non-oil GDP for news/204-latest-news/2465-national-covid-19-update-11-november youth support measures.45

24 2.4 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION RESILIENCE In addition to the three dimensions of LESSON 1 financial inclusion discussed above, it is also important to recognize the Financial services can be harnessed potential of financial inclusion to to alleviate adversity caused by build resilience to sudden shocks and catastrophic events and natural changes, such as the global COVID-19 disasters. pandemic and the ongoing climate crisis. The COVID-19 crisis has highlighted how vulnerable the global economy is to catastrophic events. At the same time, it shows that people can harness financial services, especially in digital form, to better deal with adversity and economic hardship. To find out more about AFIs Mobile money payments have surged IGF initiatives read: across SSA as friends and families support each other during the Promoting Inclusive Green lockdowns caused by the pandemic. Finance Initiatives and Policies report. Governments around the world take > View here advantage of previous financial inclusion efforts as they channel Greening the Financial Sector emergency support transfer to Through Provision Policies: vulnerable populations using branchless The Role of Central Banks agent banking networks and digital report. channels. > View here These financial networks between individuals and between people and the government can be expected to be as useful in enhancing resilience and supporting recovery after future natural disasters as they are during the current public health crisis.47 47 Volz, U., P. Knaack, J. Nyman, L. Ramos, and J. Moling (2020), Inclusive Green Finance: From Concept to Practice. Kuala Lumpur and London: Alliance for Financial Inclusion and SOAS, University of London. Available at: https://www.afi-global.org/wp-content/uploads/2020/12/AFI_IGF_ SOAS_AW3_digital.pdf

25 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION S avings, credit, insurance, money transfers LESSON 2 and new digital delivery channels all provide a financial buffer against climate-driven events Financial inclusion policies to enhance like changing weather patterns, cyclones and resilience need to be gender inclusive storm surges, as well as aid in recovery and and reduce inequities in access. reconstruction. As discussed above, during the COVID-19 pandemic, Meanwhile, supportive financing for green financial policymakers turned to digital finance technologies, like solar-powered home energy to enhance resilience of the population and the systems and cleaner cookstoves, help to mitigate subsequent economic impacts. the effects of climate change, and include those at the base of the economic pyramid in the In April 2020, regulators in Kenya and several transition to low-carbon economies.48 other countries ordered firms to waive transaction fees for low-value mobile money transactions and increased transaction caps and storage limits on e-wallets50. (Photo by Maneesh Agnihotri/Shutterstock) To find out more about AFIs (Photo by Billy Miaron/Shutterstock) IGF policy read the full Inclusive Green Finance: Survey of the While the use of DFS is a valuable tool to build Policy Landscape report here. resilience against sudden shocks, such as the impacts > View here from the COVID-19 pandemic as well as reducing vulnerability to climate risk, policymakers must remain Retail payments between individuals entail previously aware of underlying inequities in access. unexpected benefits in increasing resilience, especially for low-income households and MSMEs. When faced with 48 AFI. 2020. Inclusive Green Finance: Survey of the Policy Landscape. impacts of climate change, such as droughts, flooding, Available at: https://www.afi-global.org/sites/default/files/ or other extreme weather events, households in need publications/2020-06/AFI_IGF_SP_2010_ISBN_digital-min.pdf of financial support can reach out to friends and family near and far for emergency transfers. 49 Volz, U., P. Knaack, J. Nyman, L. Ramos, and J. Moling 2020. Inclusive Green Finance: From Concept to Practice. Kuala Lumpur and London: Such informal risk sharing mechanisms do not neatly Alliance for Financial Inclusion and SOAS, University of London . fit financial market categories: it is insurance but Available at: https://www.afi-global.org/wp-content/uploads/2020/12/ without a premium, it is credit but at zero interest and AFI_IGF_SOAS_AW3_digital.pdf with contingent repayment terms, and it is a financial network of diffuse reciprocity rather than a transaction 50 Njogore, P. 2020, Presentation of the status and outlook of between a firm and customers.49 Kenya’s banking sector. CBK Presentation. Available at: https:// www.centralbank.go.ke/uploads/presentations/1483113962_ PRESENTATION%20ON%20KENYA'S%20BANKING%20SECTOR%20 SITUATION%20AND%20OUTLOOK.pdf

26 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION The Bangladeshi government used DFS for 20% Women are eight percent less likely its COVID-19 relief efforts by channeling than men to own a mobile phone and unconditional cash transfers in April 2020 through 20 percent less likely to access the mobile financial services, reaching millions Internet in low- and middle-income of workers in the informal sector who would countries51. otherwise be hard to reach with traditional policy tools52. This particularly supported women as Progress on closing the 9 percent glob- they are highly concentrated in this sector. al gender gap in access to finance is uneven across member countries, with 9% a number making significant strides to close their gaps and others seeing their gaps to continue to widen, for example due to lower usage of new digital financial services products rela- tive to men, however we can see that financial inclusion policies, to enhance resilience, need to be gender inclusive and reduce inequities in access. (Photo by Zabed Hasnain Chowdhury/Shutterstock) Similarly, the Indian government uses digital payments to provide a minimal universal basic income of 500 rupees per month to all eligible holders of a no-frills Jan Dhan account53. (Photo by Sumit Saraswat/Shutterstock) 51 GSMA.2020. Connected Women: The Mobile Gender Gap Report 2020. https://www.gsma.com/mobilefordevelopment/wp-content/ uploads/2020/05/GSMA-The-Mobile-Gender-Gap-Report-2020.pdf 52 Islam, S.T. and Y.N. Divadkar.2020. “50 million workers in Bangladesh need cash transfers to fight the Covid-19 crisis.” The Print. Available at: https://theprint.in/economy/50-million-workers-in-bangladesh-need- cash-transfers-to-fight-the-covid-19-crisis/403367/ 53 Kejriwal, S. .2020. “Is Jan Dhan money actually reaching people?” IDR. Available at: https://idronline.org/is-jan-dhan-money-actually-reaching- people/

27 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION LESSON 3 Additionally, de-prioritization of the green elements of COVID-19 recovery, including IGF interventions, might There is a strong business case for further advance climate change and so also exacerbate greening the post COVID-19 response. the existing risks for the most disadvantaged populations. There is a clear business case for IGF efforts should thus be seen as a part of the greening the post COVID-19 response, broader policy responses to COVID-19 and the not only by reducing the risks linked to economic recovery needed during and after climate change, but also in terms this ongoing crisis. Medium- and long-term of returns on investments (ROI). responses towards economic recovery provide an unprecedented opportunity for financial Additionally, there is the potential for substantial job policymakers and regulators to adopt inclusive creation related to green investments and this can be green approaches for a green and climate change particularly focused on those in the most vulnerable resilient future. groups, as they will be most impacted by climate change. Any stimulus packages or investments should undergo adequate gender- sensitive environmental impact assessments (EIAs), to ensure that these are not harmful to the environment and do not further accelerate climate change. T here are also several inclusive green finance (Photo by Jake Lyell/Alamy Stock Photo) (IGF) policies, which can be used when designing the green interventions in relation to COVID-19 The responses can and should integrate clear green recovery. Policies and initiatives aimed at elements, such as direct green investment and projects, supporting green MSMEs or the resilience greening requirements for companies that receive building of MSMEs could be integrated into support, or a certain percentage of state aid packages medium- and long-term responses to COVID-19. being directed to green purposes54. They should also be In these policies, there should also be specific fully intersectional and understand the need to have a considerations for women-owned or -led MSMEs. gender transformative nature. (Photo by Joerg Boethling/Alamy Stock Photo) 54 AFI. 2020. Policy Framework For Leveraging Digital Financial Services To Respond To Global Emergencies – Case of Covid-19. Availãble at: https://www.afi-global.org/sites/default/files/publications/2020-06/ AFI_DFSWG_COVID_PF_AW3_digital.pdf

28 2.5 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION AFI’S ROLE IN THE MITIGATION PHASE AFI’s platform is built on a foundation The AFI management unit applied this bottom-up of peer-to-peer knowledge approach in collating, devising and imparting capacity exchange on practical, gender- to members on effective evidence-based policy sensitive, financial inclusion policy responses. interventions which are effective in supporting members in mitigating 60% Members have consistently given a the unprecedented impact of the high attribution to AFI for their policy COVID-19 pandemic on the gains and regulatory reforms: the rate of financial inclusion, as well as stands at over 60 percent as shown by forging measures to advance financial the annual Member Needs Surveys. inclusion in the most vulnerable segments of the population. This affirms the relevance of AFI’s interventions, and the high commitment of AFI members to advance To find out more about AFIs financial inclusion. More importantly, it validates regulatory reforms read the the effectiveness of AFI’s peer-learning model as an Policy and Regulatory Reforms efficient channel for policymakers and regulators to In The AFI Network 2020 report adopt tried-and-tested solutions. here. > View here The development of effective financial inclusion polices are known to contribute to the higher level objectives of sustainable access and usage of appropriate financial services by the unbanked or underbanked55. The true results of these financial inclusion policies can only be known through continued, consistent, and effective data collection, including the use of the AFI Core Set of Financial Inclusion Indicators. The results of these policies may not be felt in the short term. As such, it is vital to continuously monitor the progress of policy reforms implementation, assess the effectiveness of these policies and regulations, and examine whether they are achieving their intended objectives. 55 A FI. 2020. Policy and Regulatory Reforms in the AFI Network 2019. Available at: https://www.afi-global.org/sites/default/files/ publications/2020-07/AFI_P&RR__G_2019_AW4.pdf

29 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION The KEY AFI INITIATIVES, which responded to members' demand, include: 1 THE POLICY RESPONSE DASHBOARD that systematically collated policy responses from the network and availed this information for peer-to-peer knowledge exchange and use in building capacity for members 2 POLICY GUIDANCE AND KNOWLEDGE PRODUCTS in the form of guides and toolkits that focused on key thematic areas that are effective in addressing the impact of the pandemic such as DFS and MSMEs. 3 4 5 IN-COUNTRY POLICY VIRTUAL DIALOGUES for VIRTUAL CAPACITY IMPLEMENTATION SUPPORT leaders' strategic discussions BUILDING EVENTS tailored through the provision of and technical teams' to emerging policy priorities policy grants and technical engagement. and member needs. assistance on designing and implementing policy responses.

30 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION SECTION 3 FUTURE OUTLOOK: PATH TO RECOVERY AND FINANCIAL INCLUSION Although the COVID-19 pandemic is still ongoing, regulators and policymakers have begun to look ahead towards recovery. The purpose of this is to ensure that as the world emerges from this global crisis, we are positioned on a path of sustainable and inclusive economic recovery. Shanghai.China. (Photo by Robert Way/Shutterstock)

31 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION AS DISCUSSED IN SECTION 2, COVID-19 has > Some key policy areas were de-prioritized, or reinforced the necessity of well-integrated and had progress slowed due to nature of the inclusive financial ecosystems if we are to have pandemic. These include interoperability, digital resilient economies that have the capacity to infrastructure and IGF. These need to be revived. withstand shocks. The opportunities and lessons generated by the pandemic are producing important > New policy priorities have emerged from the policy trends and priorities across the AFI network. COVID-19 experience. These have great potential to strengthen resilience and accelerate financial The future outlook is premised on the dimensions inclusion, and as such, need to be developed and listed below. supported. > Certain segments of the economy and population, such as micro and small businesses, women and other vulnerable groups, have been more severely affected. Recovery and reconstruction measures will need to address the specific needs of these segments. RECOVERY POLICY PRIORITIES Six key policy priorities that encompass the above dimensions have emerged across the AFI network. 1 INVESTMENTS 4 DATA TO IN REGTECH & SUPTECH ASSESS POLICY EFFECTIVENESS 2 DRIVE TOWARDS DIGITAL 5 GREEN RECOVERY INTEGRATION AND DFS AND RESILIENCE INTEROPERABILITY BUILDING 3 INNOVATIONS IN 6 INTEGRATION OF ALTERNATIVE FINANCING INTERSECTIONALITY AND FINTECH FOR MSME AND GENDER- INCLUSIVE FINANCE

32 3.1 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION INVESTMENTS IN REGTECH AND SUPTECH Developing a systematic approach to These are specified below. the adoption of regulatory technology (RegTech) and supervisory technology 1. Consumer protection and market conduct: SupTech (SupTech) and investing in building offers opportunities for strengthening consumer capacities of financial regulators protection approaches, especially through solutions and supervisors with regard to these for detection and prevention of fraud, which solutions. impacts women more than men, and ensuring data privacy compliance. With the surge in the digitization of financial services and products, and the entry of new players, like 2. Maintaining financial system stability: SupTech FinTechs into the market, central banks and financial solutions can enable regulators to strike a balance regulators are expected to enhance their focus between allowing FinTech innovation and ensuring on RegTech and SupTech solutions56. COVID-19 has adequate supervision to maintain financial system reinforced the need of regulators to have access to good stability. quality disaggregated data to make informed decisions, especially when faced with a crisis or threat to the 3. Data collection and management: newer financial system and economy. There are several aspects technologies have automated data collection and to ensuring quality in data gathered. The data must be: enabled the collection of high-quality (sex and age) disaggregated data at a lower cost. Accurate, Precise, Legitimate, Reliable, Consistent, Relevant, Comprehensive, Accessible, Granular 4. Detection and prevention of financial crimes: SupTech solutions can enhance the accuracy, Investments in technologies that enable robust efficiency and predictive capabilities of data disaggregated data collection and a timely flow of management systems for AML and counter financing information, improve predictive supervision, and of terrorism (CFT) detection purposes. enhance efficiency of financial sector supervision are thus expected to pick up. These technologies can 5. Remote supervision and reporting: the current enable regulators to increase regulatory and supervisory COVID-19 pandemic has highlighted the need for efficiency by rapidly and correctly identifying supply- authorities and financial institutions to be able to side and demand-side changes and industry trends, respond swiftly to a fast-changing environment, improving consumer protection, complaint handling, and especially during crisis. RegTech and SupTech can broader redress mechanisms, lower costs of compliance enable central banks to be better prepared for for service provides, and advance the evaluation of remote reporting and supervision. policy interventions to assess effectiveness. 6. Disadvantaged groups and women’s financial These investments can also enhance the ability of inclusion: with the development and adoption of central banks and regulators to operate without innovative RegTech and SupTech tools, central disruptions during crisis situations, such as those created banks, and financial ecosystem players can enhance by COVID-19. AFI members, such as those from Ghana, their ability to support responsible practices that the Philippines, Rwanda and Mexico, are examples overcome the structural barriers faced by women to of policymakers starting to invest in robust financial access and use formal financial services. RegTech inclusion-related data collection systems (see Box 1 and SupTech can play a crucial role by influencing for more details). AFI’s forthcoming Special Report on the design and delivery of financial services and Regtech and Suptech for Financial Inclusion identifies products to tailor them to the different lifecycle six areas where RegTech and SupTech innovations needs to women, thereby making incremental but can contribute to create inclusive, sustainable and important improvements for the broader welfare of innovation-ready financial ecosystems. vulnerable groups, including women. 56 This is recognized and endorsed by AFI members through the Sochi Accord: FinTech for Financial Inclusion through the commitment “to identify, understand improve or develop new approaches to regulation and policy making, along with the use of technology, to balance the benefits of financial services innovation and financial stability, consumer protection mandates.”

33 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION Box 1: AFI Member Examples on REGTECH INITIATIVES: B angko Sentral ng Pilipinas (BSP) developed In Rwanda, the Utilities Regulatory Authority an AML/CFT application programming interface (RURA) and National Bank of Rwanda (BNR) are (API) data reporting system through their RegTech tracking DFS transactions to track the impact for Regulators Accelerators (R2A) project. of these dispositions. Separately, the BNR Filipinos can now file complaints through their developed an electronic data warehouse (EDW) mobile phones via an app or SMS. Using Natural system. The system automates and streamlines Language Processing (NLP) and AI/ML technology, the reporting processes by letting BNR pull the chatbot can accept complaints in English or data daily from the financial service providers’ Tagalog and process them by assigning a case systems and opens the possibility for real-time number or classifying them. monitoring. (Photo by rudi_suardi/iStock) (Photo by Juan Alberto Casado/iStock) Bank of Ghana (BoG) implemented a fully T he Comisión Nacional Bancaria y de Valores integrated financial surveillance system. The (CNBV) partnered with R2A and tech vendor, system, called ORASS (Online Regulatory and Gestell, to develop a new data infrastructure Analytical Surveillance Software), provides a and data storage platform, which can house centralized portal to collect prudential data transactional data submitted by supervised from banks and deposit-taking institutions entities through APIs. The new infrastructure and manage the licensing and authorization of strengthens CNBV’s AML supervisory capabilities supervised entities. by increasing the volume, frequency and granularity of AML-related data available for CNBV to retrieve and analyze. (Photo by Gerhard Pettersson/iStock) (Photo by aldomurillo/iStock)

34 3.2 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION DRIVE TOWARDS DIGITAL INTEGRATION AND DFS INTEROPERABILITY Ensuring digital interoperability consumer protection and the risk of financial exclusion. between traditional and new FSPs Regulators and supervisors would need to enhance can open avenues for innovation and their understanding and capacities on identifying and market development. mitigating the ever-changing risks that arise from integration of FinTech into the financial system. Interoperability is one of the major tools to drive BRINGING Read the full Framework for account activity, thereby spurring the underbanked SMART Digital Financial Services population’s access to and usage of a wider range of POLICIES Interoperability in Africa report financial services.57 In the recovery phase, the trend TO LIFE here. towards digital interoperability and integration between FSPs, including FinTechs, is expected to accelerate FRAMEWORK FOR DIGITAL FINANCIAL > View here as regulators seek to enhance efficiencies, increase SERVICES INTEROPERABILITY IN AFRICA customer convenience and boost scale. AFI REGIONAL POLICY FRAMEWORK Policymakers and regulators will be seeking ways to proactively foster their digital finance and FinTech 57 AFI. 2018. Framework for Digital Financial Services Interoperability in ecosystems to better support financial inclusion Africa. Available at: https://www.afi-global.org/wp-content/uploads/ and sustainable development. These encouraging publications/2018-10/AFI_Interoperability_PM_AW2_digital.pdf developments, however, also come with challenges that extend to financial stability, market fragmentation, 58 More guidance to supplement the steps below is available in the AFI Framework for Digital Financial Services Interoperability and the AFI Innovative Regulatory Approaches Toolkit. In this regard, POLICYMAKERS MAY CONSIDER the following steps.58 1 2 3 Establish a regulatory Set up ‘innovation facilities’, Build institutional capacity: framework or guidelines such as regulatory sandboxes: to increase knowledge and on FinTech: develop a allow FSPs to test new solutions understanding of the latest comprehensive and coherent and services under the technological innovations and framework to regulate regulator’s supervision within a solutions in order to develop innovation in the financial controlled environment. enabling regulatory frameworks. technology space. Sandboxes or innovation hubs This would allow regulators Ensure that the framework also provide a channel for to understand and anticipate adequately balances market regulators to gain insights and developments in the markets growth and innovation, with track market innovation and and emerging risks, and to the need to protect integrity, assess the appropriateness of make proactive adjustments safety and stability of the existing regulations. of regulatory approaches and financial system. supervisory capacity.

35 3.3 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION INNOVATIONS IN ALTERNATIVE FINANCING AND FINTECH FOR MSMEs As new business models for digital The role and market of these new players vis-à-vis lending and alternative financing meeting the financial needs of small businesses is emerge, policies that balance expected to grow in the post-pandemic world. By innovation and risks in MSME finance leveraging new technologies and information and need to be created to meet the risk management systems, innovative lending models liquidity needs of MSMEs during present an opportunity to meet the credit needs of recovery. unbanked and underbanked MSMEs while managing financial sector stability and security. Over the past few years, the MSME lending landscape has seen a major shift. Historically dominated by banks Thus, regulators would need to prepare the financial and traditional lending processes, the market is now ecosystem to integrate these new business models that witnessing the entry of new innovative alternative could aid the revival and recovery of MSMEs. However, lending platforms, FinTechs, and non-bank financial regulators would need to balance innovation and risk to institutions (NBFI). protect customers, ensure market conduct etc. AFI members that seek to STRENGTHEN THEIR ALTERNATIVE FINANCE ECOSYSTEMS could consider the measures listed below. 1 2 3 4 5 Assessment of Analysis Doing a risk Ensure that Establishing a the impact of to identify assessment of the supporting feedback loop COVID-19 on mechanisms the desired ecosystem is to determine the local MSME and providers landscape and in place to the impact sector to identify that could be determining the assist MSMEs in of extending financing needs, enabled in order most efficient and growth and job alternative available to have the least disruptive creation through financing financing biggest impact way to strengthen increased and (measurement mechanisms in meeting the the regulatory beneficial access and evaluation (conventional urgent needs of framework to to alternative [M&E]). and alternative) MSMEs during accommodate financing. This and the recovery. the additional is particularly potential gap alternative important for that would need finance women as they to be filled. mechanisms while face significantly mitigating the less access to identified risks. credit compared to men.

36 3.4 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION DATA TO ASSESS POLICY EFFECTIVENESS It is crucial to collect data and A systematic, disaggregated data-driven evidence analytics that enable policymakers gathering exercise that helps establish the effectiveness to gain a deeper understanding of of the different policy interventions and programs the social and economic outcomes of would be an important contribution to the policy policy interventions implemented to debates on crisis response and financial inclusion. To mitigate impact of COVID-19. achieve this, a mix of supply-side and demand-side disaggregated indicators would be required. Whilst pandemic-focused policy responses and measures remain ongoing, information on their effectiveness toward mitigating and/or advancing financial inclusion remain unknown, due to a lack of disaggregated data. AFI members that seek to UNDERTAKE SUCH EVIDENCE GATHERING EXERCISE SHOULD CONSIDER THE INDICATORS BELOW. 1 2 SUPPLY-SIDE DATA DEMAND-SIDE DATA May include a mix of sex and age disaggregated Includes quantitative and qualitative financial demographic, social and financial indicators. inclusion data collected through demand-side Example of financial indicators include account surveys, focus groups, and structured and semi- ownership and frequency of usage of formal and structured interviews with users of financial informal FSPs available in the local market. Social services, including individuals, households, and data may include access to health services, food businesses. The financial inclusion sex and age security, cost of living, and changes in household disaggregated data indicators may include factors income. Having sex-disaggregated data would such as mobile phone ownership, smartphone be essential to assess how the crisis affected ownership, Internet availability and affordability, women’s financial inclusion during the crisis. consumer behavior regarding savings, payments, credit sourcing, remittances, and overall financial resilience. (Photo by Sumit Saraswat/Shutterstock) (Photo by insta_photos/Shutterstock)

37 3.5 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION GREEN RECOVERY AND RESILIENCE BUILDING Renewed vigour in inclusive green For instance, as part of COVID-19 response, finance policies will drive a resilient Bangladesh Bank (BB) increased its forex and sustainable economic recovery. denominated refinancing facility called Green Transformation Fund by infusing an additional Every crisis, whether economic or otherwise, can create capital of EUR200 million (USD237 at of September unexpected opportunities. The current economic crisis 2021) to the existing USD200 million to support allows governments to break with past climate-polluting export-oriented manufacturing businesses to and gender-blind policies and channel funds to inclusive replace assets or upgrade processes to greener and sustainable green recovery projects. For example, technologies. low oil prices mean that a phasing out of subsidies for fossil fuels is less painful than in other periods, The facility was originally intended to support and such measures free funds that cash-strapped transformation of the MSMEs-dominated leather governments need more than ever to support vulnerable and textile industry of the country but was later populations and finance economic recovery59. More extended to all export-oriented manufacturers61. importantly, central banks and regulators can incorporate climate and sustainability factors into crisis response measures60. While many green finance policies are aimed at large corporations and other actors that are well embedded in the formal financial system, financial inclusion also has a role to play here. For example, MSMEs can be incentivized to invest in more environmentally sustainable technologies and activities, if they can access credit for green projects at favorable rates. By exploring the synergies between green finance and (Photo by Zabed Hasnain Chowdhury/Shutterstock) financial inclusion, policymakers have the opportunity to direct financial flows in ways that address equity concerns and facilitate a transition to a low-carbon economy, all while safeguarding financial stability. Only when financial policy reflects and incorporates all three of the above goals can economic recovery become a catalyst in a larger process of a just transition to an environmentally sustainable economy.62 59 Volz, U. 2020.“Investing in a Green Recovery”.Finance & Development. September 28-31. Available at: https://www.imf.org/external/pubs/ft/ fandd/2020/09/pdf/investing-in-a-green-recovery-volz.pdf 60 Dikau, S., N. Robins, and U. Volz (2020), “A Toolbox for Sustainable Crisis Response Measures for Central Banks and Supervisors”, INSPIRE Briefing Paper. London: Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science and SOAS Centre for Sustainable Finance. Available at: https://eprints. soas.ac.uk/33106/1/INSPIRE-toolbox-for-sustainable-crisis-response- measures-for-central-banks-and-supervisors.pdf 61 BB. 2020, Refinancing/on lending scheme of USD 200 Million and Euro 200 Million Under Green Transformation Fund, Bangladesh Bank. SFD Circular No. 03. Available at: https://www.bb.org.bd/mediaroom/ circulars/gbcrd/jul082020sfd03e.pdf 62 Volz, U., P. Knaack, J. Nyman, L. Ramos, and J. Moling (2020), Inclusive Green Finance: From Concept to Practice. Kuala Lumpur and London: Alliance for Financial Inclusion and SOAS, University of London. Available at: https://www.afi-global.org/wp-content/uploads/2020/12/AFI_IGF_ SOAS_AW3_digital.pdf

38 3.6 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION INTEGRATION OF INTERSECTIONALITY AND GENDER INCLUSIVE FINANCE Reaffirmation towards leaving no 1 one behind and integrating disadvantaged groups into financial Simplifying and enhancing women’s access to sector strategies will be key during identity documents and working with communities recovery. to overcome restrictive social and cultural norms can enable women to have the necessary documents While the global pandemic has helped spur financial to open an account and also the permission of their inclusion in some sectors, it also provides an urgent family and community to do so. Allowing alternative reminder that much more work remains to be done. forms of identity documents can also offer the same Financial networks can only be leveraged meaningfully opportunity to women who cannot access formal for recovery if all vulnerable populations have access as identity documents. well as the right products, services and skills to use on an ongoing basis. (Photo by Sumit Saraswat/Shutterstock) There is a risk that policymakers, in 2 the wake of the pandemic, become reticent to reach the most financially Enhancing the availability and opportunity to engage excluded because directing emergency with gender transformative financial and digital funds through digital financial literacy will help risk-aware women understand networks can be so much more cost- the risk versus opportunities of engaging with new effective than alternative channels. products and services that they are presented with. Such behavior would exacerbate existing inequalities in income, education, gender and location because financially excluded parts of the population are also likely to be most in need of state support. However, the COVID-19 pandemic presented the opportunity to TAKE A FRESH LOOK AT FINANCIAL INCLUSION FOR WOMEN AND GIRLS and identify existing and new prospects that regulators and financial policymakers can act upon. Some of these prospects are listed below. (Photo by i_am_zews0/Shutterstock)

39 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION 3 5 Allowing for alternative forms of collateral to access Supporting FSPs with an enabling regulatory credit or alternative credit scoring mechanisms environment and incentives and mandating to will help close the gender gap in access to finance support vulnerable segments of the population will and enable women to continue to run or even grow help facilitate the development of products and their businesses in the months and years to come. services targeted at meeting the needs of these These alternative forms of collateral could address groups more effectively than mainstream services do structural barriers that are outside of the control of currently. the regulator, such as land and property rights and inheritance legislation. (Photo by andresr/iStock) (Photo by dinosmichail/iStock) 4 6 Supporting women to have access to use, and be By tacking all these aspects along with developing able to have the permission to use, digital and effective targets for women’s financial inclusion in mobile financial services will allow them to save National Financial Inclusion Strategies (NFIS) will and access funds nearer to their homes or places of all work towards a raft of COVID-19 interventions work. Women already face severe time constraints that can help keep women and their businesses compared to men, and this will improve their ability financially included. to access a wider range of products and services. (Photo by 1001nights/iStock) (Photo by loonger/iStock)

40 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION SECTION 4 THE ROAD AHEAD The global economy contracted 3.5 percent in 2020 due to the economic shock created by COVID-19. Although nearly all countries have been negatively affected, the impact has been higher in emerging and developing economies.63 It will take several years for the world’s economy to fully recover from the damage caused by the crisis on household incomes, economic equality, poverty and factors linking to the other SDGs. 63 According to the April 2021 World Economic Outlook (IMF), cumulative per capita income losses over 2020–22, compared to pre-pandemic projections, are equivalent to 20 percent of 2019 per capita GDP in emerging markets and developing economies (excluding China), while in advanced economies the losses are expected to be relatively smaller, at 11 percent. IMF. 2021. The IMF's Response to COVID-19. Available at: https://www.imf.org/en/About/FAQ/ imf-response-to-covid-19#Q4

41 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION That said, CLEAR AND IMPORTANT OPPORTUNITIES Equally, it is vital and necessary that financial for the global community to build towards a more regulators are supported to maintain the policy inclusive and sustainable world economy, one advances that have been realized during the that leaves no one behind, have also emerged in ‘mitigation’ phase, such as macro prudential and this otherwise difficult time. Delivering on the micro policy measures that eased proportionate opportunities discussed in this report will require access to DFS, expanded liquidity to banks and strong collaboration. financial institutions to facilitate expansion of credit to the productive segments of the enconomy This collaboration would need to build upon including the SME sector, and reduced transaction experiences from the pandemic when national-level fees, among others. stakeholders and the global community collectively responded to the health crisis created by COVID-19. Gradual and calculated phasing out of these Additionally, the peer-to-peer learning model that ‘mitigation’ measures will contribute to a delivered practical policy guidance to AFI members sustainable recovery. during the ‘mitigation’ phase must be further leveraged to accelerate recovery. Bamako, Mali. (Photo by Riccardo Mayer/Shutterstock)

42 4.1 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION COLLABORATION AT NATIONAL AND INTERNATIONAL LEVELS Due to the cross-cutting nature of the collaborates with to advance financial inclusion in COVID-19 pandemic, with its wide- the network. ranging impact as a health crisis to social-economic ramifications for International collaboration has millions as well as the intersects also been vital in ensuring that with financial inclusion, the success the impetus of AFI members’ of the global response to this crisis towards achieving the SDGs requires a holistic approach, enabled through financial inclusion through national and international is maintained and supported coordination and collaboration. with technical resources for appropriate and proportionate From the perspective of advancing the financial implementation of international inclusion policy agenda, these collaborative efforts are standards without any needed at both the domestic and international front. unintended consequences that may jeopardise financial > N ational coordination and collaboration: an inclusion. increase in inter-agency collaboration at a national level was observed during the pandemic, arising to These lessons should continue to be reinforced, deliver coordinated stimulus packages and policy since neither the network nor the world is over the interventions to manage the impact on the economy. pandemic. As members traverse into recovery, even These mechanisms were more successful in more domestic and international collaboration will be cushioning the impact of the pandemic not only on required. Members with national financial inclusion the welfare and livelihood of the population, coordination mechanisms will be able to effectively especially the most vulnerable segments, but also on accelerate national financial goals in the recovery the effectiveness of managing price and financial period. It is therefore important that AFI continue sector stability. to support its members to reinforce or implement effective national financial inclusion coordination > International collaboration: the COVID-19 global and also engage with global stakeholders to advance pandemic has not spared any country in the AFI cooperation at the international level. network. The socioeconomic impact on the regional and global trade and movement of people has been ravaging nations since March 2020. Thus, it necessitated international collaboration to address the impact of the pandemic. From a financial inclusion perspective, the AFI network reinforced its collaborative approach by ensuring that members remain highly engaged, via virtual platforms, and are able to access timely and practical policy guidance from their peers at both the leaders and technical level. The virtual engagement has been useful in ensuring that members are able to connect with other peer regulators and policymakers, not only from the network but also counterparts from advanced economies, and with international stakeholders and standard setting bodies that AFI

43 4.2 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION AFI’S ROLE IN ACCELERATING RECOVERY Peer-to-peer exchange will remain critically relevant and important post- COVID-19, as regulators and policymakers strategize to help individuals and businesses recover in their jurisdictions and improve institutional preparedness for future crises. The AFI network can play a CENTRAL ROLE IN THIS EXCHANGE THROUGH ITS WELL- ESTABLISHED AND MEMBER-LED APPROACH by supporting members in the following areas: 1 2 ENABLING EXCHANGE CONSOLIDATING LEARNINGS AFI’s member engagement channels such as the It will also be important to systematically capture, Working Groups and Regional Initiatives and collate and disseminate lessons and learnings that Gender Inclusive Finance Committee would be have emerged from measures already implemented leveraged to enable the exchange of experiences, by members during the ‘mitigation’ phase as well lessons and challenges among members. Using as potential solutions for recovery in order to a hybrid approach, AFI would also complement build institutional knowledge and capacity across these channels with targeted technical and high- the network. These insights would be distilled level technical policy dialogs and forums. Where into practical gender-sensitive policy guidance there are topics of mutual convergence and value, and knowledge products. Furthermore, capacity partners from developed countries and the private building activities – virtual as well as physical – sector would also be invited. would be designed around priority technical areas and member needs. 3 4 SUPPORTING POLICY IMPLEMENTATION STRENGTHENING THE GLOBAL VOICE The AFI network would seek to boost resources and Given that COVID-19 has reaffirmed the importance support for members to implement country-level of financial inclusion for building resilient financial inclusion policies. This support would economies, AFI would enhance members’ voices be much needed post-COVID, as many members on global forums to maintain momentum on the are expected to experience pressure on fiscal financial inclusion agenda. This would also include resources in the short term. By providing in-country engagement with relevant Standard Setting implementation support in the form of grants and Bodies (SSBs) to ensure that the post-COVID global technical assistance to members, AFI would seek regulatory environment supports promotion of to encourage its members to continue devising and innovative financial inclusion in developing and delivering gender-sensitive policies for an inclusive emerging economies. and sustainable recovery.

44 MITIGATING THE IMPACT OF COVID-19 ON GAINS IN FINANCIAL INCLUSION GLOSSARY OF TERMS MASFAMU The government of Angola’s Ministry of AND ABBREVIATIONS Social Action, Family and Women's MSME Promotion AI Artificial Intelligence NBFI Micro, Small and Medium Enterprise AI/ML Artificial Intelligence (AI) and Machine Non-bank Financial Institution or Learning. NFIS Institutions AML Anti-Money Laundering National Financial Inclusion Strategy or API Application Programming Interface NIRSAL Strategies BIS Bank for International Settlements Nigerian Incentive-based Risk Sharing BNM Bank Negara Malaysia PFIP System for Agricultural Lending BNR National Bank of Rwanda or Banque POS Pacific Financial Inclusion Programme Nationale du Rwanda QR Point-of-Sale systems BoG Bank of Ghana \"Quick Response\" as in Quick Response or CBN Central Bank of Nigeria R2A QR Code, a barcode of pixels set in a CEMC Consumer Empowerment and Market RBF square grid Conduct RegTech RegTech for Regulators Accelerators CFT Countering the Financing of Terrorism Reserve Bank of Fiji CNBV Comisión Nacional Bancaria y de Valores ROSCA de México RURA Regulatory Technology CTI-U Cyber Threat Intelligence Units SACCO DFS Digital Financial Services Rotating Scoring and Credit Associations DRC Democratic Republic of Congo SAN Rwanda Utilities Regulatory Authority EDW Electronic Data Warehouse SBP Savings And Credit Cooperative EIA Environmental Impact Assessment SDG Organization e-KYC Electronic Know Your Customer SME Shared ATM Network ERT Emergency Response Teams SSA State Bank of Pakistan FDP Forcibly Displaced Persons SSB Sustainable Development Goals FinTech This can refer to an organization that SupTech Small and Medium Enterprise innovates financial technology or the TCF Sub-Saharan Africa FIS financial technology itself VPN Standard Setting Bodies FPX Financial Inclusion Strategy VSLA Supervisory Technology G2P Financial Process Exchange Targeted Credit Facility GSM Government to People Virtual Private Networks IGF Global System for Mobile Communications Village Savings and Loans Associations ILO Inclusive Green Finance KYC International Labour Organization Know Your Customer

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Alliance for Financial Inclusion e ISBN 978-967-19723-4-2 AFI, Sasana Kijang, 2, Jalan Dato’ Onn, 50480 Kuala Lumpur, Malaysia 9789671972342 t +60 3 2776 9000 e info@afi-global.org www.afi-global.org Alliance for Financial Inclusion AFI.History @NewsAFI @afinetwork